Separatism was a hot topic for the latest Quebec election. Quebec’s separatist party was defeated, but regardless of the outcome secession will remain one of the most important controversies underlying Canadian confederacy.

Secession increases ethnic, linguistic, religious, and cultural diversity, while in the course of centuries of centralization hundreds of distinct cultures were stamped out.

There are also economic reasons to favor secession. Although Quebec receives transfer payments from Ottawa, these ultimately make Quebec’s economy weaker. This kind of provincial welfare creates an environment where people have stronger incentives to get money from the government (because there is more loot up for grabs), either through welfare or cronyism, rather than serving one’s fellow man in the market and truly benefiting society.

Furthermore, smaller countries have a stronger incentive to favor free trade, and reject protectionism. It is surely correct that if Quebec maintained its same economic policies post-separation, it would be a disaster for the citizens. But there would be far greater pressure to actually liberalize the economy if there was less subsidization available. Additionally, any of Quebec’s wealth that is currently sucked into the black hole of Ottawa would remain in Quebec.

It would be an advance in Canadian civilization for the country to split. But it would not be enough to stop there — there should be hundreds, or thousands of Canadas, which would create a land of amazing prosperity and happy coexistence. There can still be a “Canada” — but Canada should be a coalition of cooperating territories, not a exploitative system where some groups use Ottawa to rip off other groups.

Experience suggests a long period of very low interest rates may be associated with excessive credit creation and undue risk-taking as investors seek higher returns, leading to the underpricing of risk and unsustainable increases in asset prices.

This is a remarkable statement, really — it reveals that the Bank of Canada’s economists either don’t know economics, or they pretend not to know. The issue should not be about how low interest rates “may” be associated with excessive credit and excessive risk. Rather, there is a direct causal relationship here.

If there is credit expansion [by the central bank], it must necessarily lower the rate of interest. If the banks are to find borrowers for additional credit, they must lower the rate of interest or lower the credit qualifications of would-be borrowers. Because all those who wanted loans at the previous rate of interest had gotten them, the banks must either offer loans at a lower interest rate or include in the class of businesses to whom loans are granted at the previous rate less-promising businesses, people of lower credit quality.

This is not rocket science. It is not a complex relationship to understand at all — if interest rates rise, there will be fewer risky loans than there would be otherwise; if interest rates falls, there will be more risky loans than there would be otherwise.

But if you have a PhD in economics, like our ex-Goldman central planner at the BoC, Mark Carney, you probably are incapable of understanding this, and would say something inane like, “In light of the high level of indebtedness of Canadian households, some caution in banks’ lending to households is warranted.”

Carney does not realize that lending standards are directly related to the ease with which credit is made available. Talk is cheap. If Carney jacked up interest rates to 10% tomorrow, that would have a dramatic impact on lending standards, much more so than his oracular admonitions about risky lending.

On the other hand, what would happen if Carney decided the economy was too weak, and he cut interest rates down to zero? Then we can rightly expect that more loans would be made to those businesses and individuals would have been previously deemed unworthy of credit.

All is not well, however. The mammoth growth of consumer debt in this country, the worst of all OECD countries at about 140% debt-to-asset levels, is a very serious problem . With our housing market still in bubble territory, unemployment relatively low, and implausibly low interest rates, Canadians have been piling on more and more debt.

It’s so bad, even the banks — you know, the ones making all these questionable loans to Canadians mired in debt — are raising concerns. You have to acknowledge this is a bit rich — but don’t worry big Canadian banks — I am sure you can keep making your risky loans and if (when) things turn ugly, someone will bail you out.